Paying the Apprenticeship Levy

Who pays the Apprenticeship Levy?

The Apprenticeship Levy applies to both public and private UK employers across all sectors with an annual payroll of more than £3m.

What counts as your payroll?

Your payroll is based on the total amount of earnings subject to Class 1 secondary NICs. Earnings include any remuneration coming from employment, such as wages, bonuses, commissions and pension contributions that you pay NICs on but not benefits in kind.

How much is the Apprenticeship Levy?

The Apprenticeship Levy is set at 0.5% of your total payroll and is collected monthly via PAYE. There is a £15,000 fixed annual allowance that employers can offset against their levy payments.

The levy allowance operates on a monthly basis and accumulates over the year. This means you have an allowance of £1,250 a month. Any unused allowance is carried over from one month to the next.

EXAMPLE: Calculating what you have to pay

An employer with an annual wage bill of £5m

Levy sum: 0.5% of £5,000,000 = £25,000

Offset allowance of £15,000 (£25,000-£15,000) = £10,000

Annual levy payment = £10,000 (£833.33 per month)

What happens if you are in a group of companies?

Where a group of employers are connected you can only use one £15,000 allowance. Therefore, you must decide what proportion of the levy allowance each employer in the group will be entitled to.

Skills Training UK’s Apprenticeship Consultancy Service can help allocate this allowance – ensuring you receive maximum return on investment and make best use of the funds available.

How do employers get back more than they put it?

Employers that pay the levy in England receive a 10% top-up from government. It means that for every £1 you contribute, you actually receive £1.10.

Spending the Apprenticeship Levy

How are Apprenticeships paid for and are they affordable?

Payments are spread across the entire lifetime of the Apprenticeship – taken each month by your training provider. This means that you don’t have to meet the full cost of the Apprenticeship at the start of the training.

You just need enough funds in your account to meet the monthly payments. In addition, 20% of the cost of the Apprenticeship will be held back and taken from your Digital Apprenticeship Service (DAS) online account at the end of the Apprenticeship.

Skills Training UK can help you to manage this process – making clear the full cost of your Apprenticeship, the amount of funds that are available and how much you have to spend every month.

Because the cost is spread over the length of the programme, Apprenticeships are much more affordable than you might think. So, contact us today levy@skillstraininguk.com to make sure you don’t miss out.

Do levy funds run out?

Yes. Levy funds will expire 24 months after they enter your digital account unless you spend them on Apprenticeship training. For example, funds that entered your account in July 2017 will expire in July 2019.

If you don’t use them, you will lose them.

The account works on a first-in, first-out basis. Whenever a payment is taken from your digital account it automatically uses the funds that entered your account first.

Levy funds can pay for Apprenticeship training and assessment. This must be with an approved training provider (such as Skills Training UK) and a registered end-point assessment organisation.

They cannot pay for Apprentices’ wages, travel or subsidiary costs, managerial costs, work placements, traineeships or the costs of setting up an Apprenticeship programme.

How much will an Apprenticeship cost?

Each Apprenticeship has been placed into one of 15 funding bands ranging from £1,500 to £27,000. These bands determine the maximum amount that can be spent on each Apprenticeship.

The upper limit of the funding band also caps the maximum price that the government will ‘co-invest’ if an employer does not pay the Apprenticeship Levy or has insufficient funds to pay for the number of Apprenticeships they want to use.

What age do Apprentices have to be – can levy funds be used for existing employees?

Apprenticeships can be offered to new or current staff of all ages and at any level. Older staff, even those with degrees, can follow an Apprenticeship if they are taking on new roles or require new knowledge and skills.

Can employers use the levy to fund Apprenticeships in their supply chain?

Yes. From April 2018, you can transfer 10% of your funds to another employer’s digital account.

What happens if an employer’s levy funds don’t cover the full cost of training?

If an employer pays the Apprenticeship Levy but their funds don’t cover the full cost of the Apprenticeship training they would like to buy, then additional support is available.

The government will pay 90% of the additional costs (up to the maximum of the relevant funding band) - with you as the employer ‘co-investing’ 10%.

EXAMPLE

Employer with a levy pot of £35,000 takes on five apprentices

Agreed cost = £9,000 each

Total Apprenticeship spend = £45,000

Shortfall = £10,000

Government pays 90% = £9,000

Employer pays 10% = £1,000

Total spend by employer = £36,000 (£35,000 + £1,000)

Total contribution from government = £9,000

What are the additional financial incentives for employing a 16-18 year old?

Employers are given an extra £1,000 for taking on an Apprentice aged 16-18. The money is paid in two stages – at three and 12 months.

An extra £1,000 is also available for Apprentices aged 19-24 with additional learning needs or who come from a disadvantaged background.

What happens if employers take on an Apprentice who needs help with English and maths?

If you employ an Apprentice who needs extra help with English and maths, additional payments are made to your training provider. This does not come out of your Apprenticeship Levy funds.

SMEs and non-levy paying employers

What about employers who don’t pay the Apprenticeship Levy?

Employers with an annual wage bill of less than £3m do not pay the Apprenticeship Levy.

Instead, you pay just 10% toward the cost of the Apprenticeship and the government will pay the remaining 90%. This is known as ‘co-investment’. The maximum cost will depend upon which one of the 15 funding bands the Apprenticeship you want to use falls into.

If you wold like to know how Skills Training UK can help your SME manage its Apprenticeships funds, please click here.

Are there extra incentives for employees with less than 50 members of staff?

Yes. If you are an SME with less than 50 employees, then the government meets the full cost for Apprentices aged 18 and under. For those aged over 19 they will pay for 90% of the cost – the rest has to be met by you.

The government also meets all of the costs for employing Apprentices aged 19-24 from a disadvantaged background or with additional learning needs.

How do non-levy paying employers pay for Apprenticeships training?

SMEs are still subject to the same Apprenticeship funding bands as levy paying employers. From 2019 you will have to pay for the cost of training through the new Digital Apprenticeship Service (DAS) online account.